Heisenberg’s Friends

‘The Ultimate Guide To Equity Markets’ Or, ‘Because Lines’

Former trader and current angry Bloomberg contributor Richard Breslow is out with a piece on Wednesday called “The Ultimate Guide to Navigating Equity Markets.”

And while I can’t know if FT’s Katie Martin knows Richard or not, what I do know is that what you’ll read below has a lot to with “lines.”

And Katie loves “lines”.

I’ve never read a prospectus, but if there’s one out there for Vomiting Camel Asset Management, I imagine it’s all of one sentence long: “Because lines.”

Regular readers know we don’t give a damn about arbitrary lines drawn on a chart, and our contention is that you probably shouldn’t either. The idea that you can divine anything worth knowing from something you yourself drew is absurd on its face – you’re better off asking the nice palm-reader lady down the street.

But, we do like Richard Breslow. He’s pretty fucking cool. So as usual, we’re going to give him the benefit of the doubt and print the following which is all about moving averages.

Via Bloomberg

Truth be told, there are very few of us who know what’s going on with the equities markets. On any given day, they’re going to collapse, never go down again or must be sold or bought on any strength or weakness, as the case may be. And, like congress, many, if not most, people hate the group as a class (index) but love their personal representative (sure winner). The simple truth is that this asset class’s fate is being clouded by the fact that the question is being framed all wrong. And as scientists of the market we should know better than to forecast (kind choice of words) market direction while ignoring the maxim, “garbage in, garbage out.”

Day in and day out we’re inundated with analyses of valuations, metrics and the like. We get our regular instant armchair take on the latest geo-political outrage. After all, who understands this stuff better than foreign exchange salesmen? And a lot of time we’re just simply exhorted to love or hate a given bourse based on the perceived charisma or odiousness of the head of state

Macron’s dreamy, so of course after he rewrites the utterly entrenched labor laws of France, overhauls the economy into a hotbed of innovation, he will turn his full attention to European-wide structural problems. Rumor has it, he can also make an incredible vegetarian foie gras. How can you not be optimistic about everything Europe? Other leaders must be given no quarter on any issue as a matter of principle. I mention this only because if you look at a chart of the euro versus the dollar, yesterday’s spike and subsequent failure above 1.20 looks distinctly like a middle-finger pattern

Inevitably, the market doesn’t carry through as promised and it’s inevitably made clear that it has nothing to do with that day’s investing thesis but some nefarious and exogenous influence

So put all this aside and concern yourself with how each equity market is behaving around its 21- and 55-day moving averages. Almost every index respects these indicators and traders should love the opportunities presented when the two lines cross. All the words you hear mean little if you’ve not been given the sign

Risk off is when the 21-dma crosses lower versus the 55-dma. That’s when you know you should be scared. When the opposite occurs, feel free to go back to ignoring the front page news

The euro has been on a tear since April. How do you know when it starts to be a relative performance issue for European stocks? The end of June, just as soon as the technical signal flashed. Is USD/JPY weakness becoming a problem for Japan? Let’s see, but be aware the lines crossed yesterday

Which sets up a really interesting question. The one you all actually care about. The S&P 500 looks like it’s stuck in a tight range. Where it goes nobody knows. Follow the lines. Two weeks of a lot of noise seemingly signifying nothing has caused the 21 to inch stealthily lower and it hovers, as we speak, 5 points above the 55. If, not when, they cross it’s likely that you’ll have a clearer sense of what to do. Nota bene, close but no cigar, doesn’t score points in this particular game